Divergence in the performance of members of the single currency is a real challenge

by: Martin Wolf

Events are testing the eurozone yet again. The latest shock comes from Italy, where Matteo Renzi’s comprehensive defeat in the constitutional referendum has caused his resignation. Italy, which has the eurozone’s third-largest economy, is an important country. Mr Renzi’s departure may not prove a decisive event. But, so long as the eurozone fails to deliver widely shared prosperity, it will be vulnerable to political and economic shocks. Complacency is a grave error.

Things are at least improving. Eurozone real gross domestic product expanded by 5.5 per cent between the first quarter of 2013 and the third quarter of 2016. Unemployment fell from a peak of 12 .1 per cent in June 2013 to 9.8 per cent in October 2016. Thus growth is running above potential. Yet this improvement has not offset the damage done by the financial crisis of 2008 and the eurozone crisis of 2010-12. In the third quarter of 2016, the eurozone’s aggregate real GDP was a mere 1.8 per cent higher than in the first quarter of 2008. Remarkably, real domestic demand in the eurozone was 1.1 per cent lower in the second quarter of 2016 than it had been in the first quarter of 2008. This extreme weakness of demand should not have happened. It represents a huge failure. (See charts.)

A direct way of identifying that failure is in terms of nominal demand. In the second quarter of 2016, eurozone nominal demand was only 6.9 per cent higher than in the first quarter of 2008. So what should it have been? Assume the trend rate of real growth is 1 per cent, while the inflation target is close to 2 per cent. Then nominal demand ought to grow at about 3 per cent a year. If policymakers had achieved that, nominal demand would have risen by about 28 per cent between the first quarter of 2008 and the second quarter of 2016. That must be too much to ask. But US nominal demand rose by 23 per cent over this period. Moreover, the weakness of demand also had a strong downward effect on inflation. Year-on-year core inflation has not exceeded 2 per cent since January 2009 and has averaged just 1.2 per cent since that date.

A severe challenge is the divergence in economic performance among the members of the single currency, with deep recessions in a number of member countries (notably Italy) and stagnation in others (notably France). According to the Conference Board, a research group, between 2007 and 2016 real GDP per head at purchasing power parity rose 11 per cent in Germany, barely changed in France, and fell 8 per cent in Spain and 11 per cent in Italy. It will probably take until the end of the decade before Spanish real incomes per head return to their pre-crisis levels. In Italy, this seems unlikely to happen before the mid-2020s. The painful truth is that the eurozone has not only suffered poor overall performance, but has also proved to be a machine for generating economic divergence among members rather than convergence.

Italy has a problematic banking sector, with some €360bn in non-performing loans. Yet this is mainly the result of the deep and prolonged slump. If this continues, still more bad debt is likely to emerge. The inability to agree on how to resolve the banking crisis in ways that meet the constraints of Italian politics on the one hand, and of European rules calling for bail-ins, rather than bailouts, on the other, is now a canker in Italy’s politics. One encouraging development, however, is the signs of shifts in competitiveness in the eurozone. One indicator is relative wages. Before the crisis, average wages rose markedly in France, Italy, Spain, Greece and Portugal, relative to German levels. This has been at least partly reversed since then. Other things being equal, this should help restore balance within the eurozone’s economy.

Nevertheless, the disappearance of the pre-crisis current account deficits in crisis-hit eurozone countries is largely due to severe collapses in their real demand. In the third quarter of 2016, Italy’s aggregate real domestic demand was 10 per cent lower than in the first quarter of 2008, while Spain’s was still close to 11 per cent lower, as it recovered from its post-crisis fall of nearly 19 per cent. Germany’s real demand has risen by 8 per cent over the same period. But its current account surplus has risen from 7 per cent of GDP in 2007 to a forecast of just under 9 per cent in 2016. This is yet another failure in internal eurozone adjustment and makes it too dependent on a large external surplus.The combination of weak aggregate demand with huge post-crisis divergences in economic performance has turned the eurozone into an accident waiting to happen. True, it is quite possible that the situation will stabilise. But the interactions between economic and financial events and political stresses are unpredictable and dangerous.

What the eurozone needs most is a shift away from the politics of austerity. In its most recent Economic Outlook, the OECD, a club of mostly rich nations, makes a cogent (albeit belated) plea for a combination of growth-supporting fiscal expansion with relevant structural reforms. This is most relevant to the eurozone because that is where demand has been weakest and the fetish over fiscal deficits most exaggerated. In the big eurozone economies, net public investment is near zero. This is folly.

Alas, little chance of change exists. Those who matter — the German government, above all — view public borrowing as a sin, regardless of its cost. The political and economic impact of breaking up the eurozone is so great that the single currency may well soldier on forever. But it has by now become identified with prolonged stagnation. Those member countries with the power to change this approach should ask themselves whether it really makes sense. It is time for the eurozone to stop living dangerously and start living sensibly, instead.

A stronger dollar and higher U.S. bond yields are a double-edged sword for global markets

By Richard Barley

Chairwoman Janet Yellen’s Fed showed faith in a strong U.S. economy. All well and good, but a more active Fed may raise risks of volatility globally. Photo: Reuters

The Federal Reserve looks as if it could pull away from the global central-bank pack again. The dollar and U.S. yields are the key swing variables in what that means for the rest of the world.Markets had pretty much universally expected the Fed to lift interest rates by 0.25 percentage point, and the Fed duly delivered. But the signal that there could be three interest-rate increases in 2017 rather than two has pushed up bond yields and the dollar sharply. The ICE dollar index has risen 1.8% in two days and reached its highest level since 2002, with the euro falling below $1.05 and the yen weakening to ¥118; the 10-year Treasury yield rose above 2.6% Thursday.For developed markets such as Europe, the Fed’s faith in a U.S. expansion is probably good news. The European Central Bank, despite market nerves over its decision to extend its bond purchases at a reduced pace, isn’t going anywhere on rates—much like other central banks. Monetary-policy divergence is arriving, and clearly visible in the gap between two-year German and U.S. yields, which has vaulted to over 2 percentage points, having spent months fluctuating around 1.3 points. A weaker euro should help the eurozone and a moderately steeper yield curve is already buoying European bank share prices, which is a positive development.For emerging markets, the picture is more mixed. Currencies from the Mexican peso to the South African rand fell against the dollar. That could complicate life for borrowers with U.S. dollar-denominated debt. Some countries are clearly facing tests, like Turkey, where the lira has declined by 17.5% this year against the dollar, prompting the central bank to raise rates even as the economy slows. But emerging countries already saw big outflows after the so-called taper tantrum of 2013. That makes them potentially less vulnerable. The recovery in commodities prices also should help exporters.Still, the world is faced with an odd mix of forces. Markets have bought into reflation in the U.S., spurred by Donald Trump’s election victory, and the Fed appears to have bought that story, too. A stronger U.S. economy should be good news for global growth, which already was showing signs of gaining momentum in the second half of 2016. But at the same time, a more active Fed raises risks in a world where ultra-generous monetary policy has been the buffer against volatility.Much will depend on the speed of gains in the dollar and yields. Too rapid a surge in either would likely upset global markets.

Back in 2013 interest rates in the US and elsewhere started to rise, and the results were scary to put it mildly. Here’s an excerpt from a column that appeared here in July of that year:

Interest rates soared again last week. This weekend a lot of people are running a lot of numbers and getting some terrifying results.

It seems that the past few years of falling interest rates have lulled a big part of the global economy into financing with variable-rate debt. So when interest rates go up, there’s a world-wide reset in interest costs that, best case, amounts to a tax increase on individuals and businesses and, worst-case, threatens to blow up the whole system.

The most familiar but least worrisome part of this story is the adjustable rate mortgage, or ARM, which is basically a teaser-rate home loan that rises over time towards the prevailing 30-year fixed rate. The latter rate jumped from 3.5% to 4.5% in just the past month, which means ARM resets are now aiming at a higher target. For ARM holders, the resulting higher monthly mortgage payment is exactly like a pay cut or tax increase, leaving less around at the end of the month for new cars, vacations, etc. So discretionary spending drops and, other things being equal, the economy slows down.

Another victim is the long-term bond. Retail investors poured about $1 trillion into bond funds between 2009 and 2012, in part because bonds had been going up pretty much forever, and in part because investors were scared and bonds were sold by credulous financial planners as safe.

For a while it worked. Bond prices soared as long-term rates kept falling, which helped both individuals and pension funds rebuild capital lost during 2009’s debacle. But since the beginning of this year US bond funds have seen $60 billion depart, while bonds themselves have fallen hard (though, okay, not nearly as hard as gold). The price of US 20-year Treasuries, for instance, is down by almost 15% since April.

In other words, the “safe” part of individual and institutional portfolios is tanking.

Here again, this is like a big pay cut which makes the holders of these funds less rich and therefore less likely to spend money.

But the real systemic risk enters with sovereign debt. One of the many ways the US, Japanese and European governments hide the effects of their mounting debt is by doing most of their borrowing for short periods of time, a few months to one year, where rates are close to zero and money is effectively free. In some cases short-term rates have fallen faster than borrowing has risen, producing lower interest costs even while debt has been piling up. Now, with long-term rates rising, governments have a choice: either roll their maturing long-term debt into very short-term paper, which would keep interest costs down but make it necessary to roll over even more debt each year, or keep the maturity of their debt constant and see their interest costs rise dramatically. Or have their central banks buy even more debt and write off the interest, which might prolong the lie for a while, but at the risk of a tidal wave of newly-created currency wreaking various kinds of havoc.

Now for the big one: Hedge funds and money center banks have created hundreds of trillions of dollars of interest rate swaps, in which holders of a security that pays a fixed rate of interest exchange this income stream for a variable stream based on some benchmark interest rate. The players on the variable-rate side of the bet lose big if rates keep rising. And most money center banks and many, many hedge funds are in this position. All it will take is a few of them to be overwhelmed by these bets going sour to pull down the whole show — exactly as happened with credit default swaps in 2009.

The interesting (if that’s not too neutral a word) thing about all this is that the events mentioned here will happen simultaneously if rates keep rising. ARM and bond fund holders will have less money to spend, slowing economic growth; governments will see their interest costs spike, making borrowing more expensive and risking a flight from their now clearly-mismanaged currencies; and derivatives markets will see growing instability in interest rate swaps, which might threaten rest of the rat’s nest that is the global banking community.

All because interest rates return to historically normal levels.

Confronted with the above doomsday scenario, the major governments pushed interest rates back down – in many cases into negative territory. This granted the variable-rate world a temporary reprieve from the consequences of its mistakes — and allowed the worst offenders to ramp up their borrowing even further. Government debt soared, derivatives books expanded and mortgage and auto loans returned to pre-Great Recession levels.Now rates are rising again. Check out the near-parabolic arc of US Treasuries:

And the impact is, once again, being felt in the most rate-sensitive parts of the economy. Mortgage refinancing, for instance, is drying up:

(CNBC) – The highest interest rates in well over a year are putting a dent in the mortgage business.

Total mortgage application volume fell 9.4 percent last week versus the previous week, on a seasonally adjusted basis. The Mortgage Bankers Association adjusted the weekly reading to account for the Thanksgiving holiday. Volume was 0.5 percent lower than the same week one year ago, the first annual drop in total volume since January.

“Mortgage lenders have been very thankful for a strong 2016 in terms of origination activity. However, mortgage application volume in the Thanksgiving week dropped sharply to the lowest level since early January, as mortgage rates increased to their highest point since July, 2015,” said Michael Fratantoni, chief economist for the MBA.

Refinance volume has been falling steadily as rates rise, but it took another sharp drop, down 16 percent for the week, seasonally adjusted. Refinances are most rate-sensitive and are now down 3 percent from a year ago, when rates were not much different than they are today.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.23 percent last week from 4.16 percent, with points increasing to 0.41 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio loans.

(CNBC) – Donald Trump’s stunning victory for the White House may mark the long-awaited end to the more than 30-year-old bull run in bonds, as bets on faster U.S. growth and inflation lead investors to favor stocks over bonds.

A two-day thumping wiped out more than $1 trillion across global bond markets worldwide, the worst rout in nearly 1-1/2 years, on bets that plans under a Trump administration would boost business investments and spending while firing up inflation.

“We’ve had a sentiment shift in the bond market. People have already started reallocating out of bonds and into stocks, said Jeffrey Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital, which has more than $106 billion in assets.

The stampede from bonds propelled longer-dated U.S. yields to their highest levels since January with the 30-year yield posting its biggest weekly increase since January 2009, Reuters data showed.

The 10-year German Bund yield rose to its highest level in eight months, while the 10-year British gilt yield climbed to its highest level prior to Britain’s decision to leave the European Union on June 23, known as Brexit.

Bank of America/Merrill Lynch’s Global Broad Market Index fell 1.18 percent this week, the steepest percentage drop since June 2015, which is equivalent to more than $1 trillion. Its U.S. Treasury index suffered a 1.91 percent decline on a total return basis, the biggest weekly drop since June 2009.

Auto loan rates, meanwhile, are spiking, especially for subprime borrowers. This couldn’t come at a worse time for a bubble that already seems to be popping:

(Business Insider) – There is a lot of talk out there about the auto-loan market right now.

Hedge fund manager Jim Chanos has said the auto-lending market should “scare the heck out of everybody,” while the auto-lending practices of some used-car dealerships has been given the John Oliver treatment on TV.

It’s a topic we’ve been paying attention to as well. In a presentation in September at the Barclays Financial Services Conference, Gordon Smith, the chief executive for consumer and community banking at JPMorgan, set out some eye-opening statistics on the market.

Now the New York Federal Reserve is taking a closer look at the market. In a blog published Wednesday on the New York Fed’s Liberty Street Economics site, researchers highlighted the deteriorating performance of subprime auto loans and set off the alarm.

“The worsening in the delinquency rate of subprime auto loans is pronounced, with a notable increase during the past few years,” the report said.

To be clear, the overall delinquency rate for auto loans is pretty stable, and the majority are performing well.

There are, however, signs of stress in the subprime market segment, which has seen rapid growth. Here are the key numbers from the report:

The subprime delinquency rate for the trailing four quarter period moved to 2% in the third quarter. The only other time it was 2% or more was in the aftermath of the financial crisis.

Subprime auto loan originations hit $31.3 billion in the third quarter, down from $33.6 billion in the second quarter. Outstanding subprime auto loan balances now stand at $280.2 billion, a record high. For perspective, the pre-crisis high was $249.5 billion, in the fourth quarter of 2007.

In other words, the subprime delinquency rate is creeping up, while the subprime market is ballooning in size. The Liberty Street Economics post, written by Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw, said:

“The data suggest some notable deterioration in the performance of subprime auto loans. This translates into a large number of households, with roughly six million individuals at least ninety days late on their auto loan payments.”

Add it all up and a picture emerges of a system that can’t handle rising interest rates, but is nonetheless getting them. The result? At best a global slowdown and at worst an epic crisis. Wonder how the world’s governments will respond?

American politics is profoundly corrupt. Until we come to grips with that fact, the populists will keep winning.

By Sarah Chayes

I have an odd perspective on the election of Donald Trump: a warped kind of déjà vu. For the past decade, I’ve worked on the issue of corruption around the world. In particular, I’ve spent a lot of time explaining that people who live in structurally corrupt political and economic systems are sometimes driven to extremes. I have always understood that the analysis was relevant in the United States — just maybe not how relevant.In the past 10 years, populations have rejected “rigged systems” that had stood for decades. They have risen up in mass protests in Brazil, Guatemala, South Africa, and South Korea. They have overthrown their governments in open insurrections like the Arab Spring and Ukraine’s Maidan. Or they have fallen in behind self-proclaimed Robin Hoods such as Venezuela’s Hugo Chávez. Occasionally, they have joined violent religious movements like the Islamic State or Boko Haram.With Trump’s election, the United States just joined this list.It might make his voters uncomfortable to hear that they’ve behaved much as my former neighbors in Kandahar, Afghanistan, who re-embraced the Taliban in their disgust at the corruption of Hamid Karzai’s government. Hillary Clinton voters might be equally upset to consider the degree to which the United States has come to resemble that regime or those of other corrupt countries I have been studying.We Americans may not be subjected to shakedowns by the police, the judge, or the county clerk. But consider current realities: Networks that weave together public officials and business magnates (think the food or energy industries, pharmaceuticals, or Wall Street) have rewritten our legislation to serve their own interests. Institutions that have retained some independence, such as oversight bodies and courts, have been deliberately disabled — starved of operating funds or left understaffed. Practices that, while perhaps not technically illegal, clearly cross the line to the unethical, the inappropriate, or the objectively corrupt have been defended by those who cast themselves as bulwarks of reason and integrity.How many of us have said — in any meaningful way — “That’s a red line!”? Who among us refused, in the end, to take the money or make the excuses?For me, the seminal moment came on June 27, when the Supreme Court overturned former Virginia Gov. Bob McDonnell’s conviction on corruption charges. A businessman had lavished luxury travel, designer clothes, a Rolex watch, and tens of thousands of dollars on McDonnell and his wife, apparently in return for their help persuading public universities to perform clinical trials on his company’s tobacco-based anti-inflammatory supplement.The Supreme Court’s decision was unanimous. Not one of the eight justices could come up with a reason why such behavior might violate the law. None even thought the matter significant enough to warrant separate comment or a cry to our collective conscience: “Given the wording of the statute, I had to vote this way. But the legal definition of corruption has grown too narrow. These statutes had better change if America as we know it is to survive.”Subsequent commentary was signally lacking in outrage. On NPR’s The Diane Rehm Show that day, for example, the guests (two legal scholars and a journalist) practically skipped over the McDonnell decision. Rehm had to push them to grapple with it. Their consensus seemed to be that if the standard enshrined in the lower court’s decision to convict McDonnell were to prevail, every politician in Washington would be liable.Well, exactly.These are moral issues. And the very laws we depend on to enforce what should be bedrock standards have sometimes undermined them. Do we reject corruption? Of course we do — just as we refuse to countenance torture. But then come the legal definitions. What counts as torture? How bad does it have to hurt? What do you mean by corruption? The head of an Egyptian business association once told me: “That’s part of the brilliance of corruption in Egypt; they make it legal!” The United States is going down the same road: The laws we hold so dear have narrowed the definition of corruption almost to the point of irrelevance.Two candidates — Bernie Sanders and Donald Trump — made the word “corruption” central to their campaigns. Together they drew easily more than half of votes cast. Yet to use this word to describe America remains almost taboo in polite circles. In the hundreds of pages of post-election commentary, how often has it been emphasized?One remark from 2013 says a lot about what has befallen America. When then Salon writer Alex Pareene described some of JPMorgan Chase’s practices as corrupt, CNBC host Maria Bartiromo slapped him down. “Should we talk about the financial strength of JPMorgan, at this point?” she wondered. “Even with all of these losses, the company continues to churn out tens of billions of dollars in earnings and hundreds of billions of dollars in revenue. How do you criticize that?”Indeed. How do you criticize money these days?In a country full of sophisticated lawyers and lobbyists and rationalizers, it is now urgent to ask whether we still understand what corruption is. To say it’s what is proscribed by law is to fall into a logical sinkhole.What does corruption mean when a senior public official receives gifts from foreign leaders, via an institution bearing her name, while she is making decisions regarding these same foreign leaders? How should someone like me talk about corruption overseas when five different police departments use force against peoples whose lands were stolen through repeated treaty violations, on behalf of a private company pleading the letter of property laws?What is the definition of corruption when a bank defrauds millions of customers without losing its license? When 2 million American adults are behind bars for trivial offenses, their lives permanently derailed, while no legal institution has punished any executive for bringing about the collapse of the world economy?It’s time to see past the rationales and the rhetoric. No matter who won our vote, we must come to grips with these questions.Whatever our affiliation or walk of life, we must also, each of us, discover and hold on to that dividing line that marks off the reasonable compromises from the unacceptable.For, like the people of Mosul in Iraq or northern Nigeria, who traded intolerably corrupt regimes for Islamist crusaders who were worse, Americans will wake up in January under a system that is more corrupt than the one that fueled their rebellion. That is the irony of resorting to a wrecking ball to bring down a corrupt regime. Too often, the kleptocratic networks prove resilient, while those who revolted end up with crushed heads.Already, President-elect Trump’s questionable affiliations and potential conflicts of interest — as genteel vocabulary would have it — are making headlines. The issue is not one of technical legality or poor vetting. His actions and associations are deliberate. While tweeting out distractions to disguise the fact, he will unleash a feeding frenzy. Our laws and institutions will be bent to the purposes of personal enrichment. Industry lobbyists will draft the bills. He will negotiate business deals with foreign counterparts, confusing his personal interests for the good of the nation. Agencies that try to hold the line will see their budgets slashed, their officials belittled in public. Law enforcement will be even more selective than it is today. The labor of human beings, the land, and what’s on it or under it will be converted to cash as efficiently as possible. And what can’t be converted will be bulldozed out of the way.And what will Americans do in the face of this exacerbation of our own brand of corruption? Will we further relax our standards, shrugging our shoulders and referring to the letter of ever-changing laws? Or will we reach for a definition of corruption that is in line with common sense and rebuild our foundations upon that bedrock?

Our answer to that challenge will determine whether this is a crisis the United States survives and from which it emerges renewed — or whether we lurch into some more violent and damaging cataclysm.

The Janus manager warns that the current rally is unlikely to last, citing longer-term market risks.

I’ve got nothing against national anthems, and I wouldn’t kneel even if I was Colin Kaepernick. I just think as a country, America the Beautiful might have been a better choice for ours and that in some cases, some words of The Star Spangled Banner don’t ring true. A few countries’ anthems are, in fact, quite pleasing to my ear. O Canada has a beautiful melody and words to match, although you’d probably have to be watching hockey to hear it. Our Star Spangled Banner? For me — not so much. I can sort of see the “rockets’ red glare” but it’s hard to sing and quite long — especially if you’re waiting for the kickoff. But like I said, I have nothing against it, except maybe the last stanza. Not the “Home of the Brave” part. Having spent two years in Vietnam, ferrying Navy SEALs up the Mekong Delta, I witnessed a lot of bravery. Not me. I was duckin’ quicker than Bill Murray’s gopher in Caddyshack. The SEALs though. Yeah — tough guys — very brave.

I quarrel however, with the part about “Land of the Free.” Free? For almost all of us — “yes” — but for three-plus million of us? Not really. Take a look at the chart below and be honest if your eyes don’t bug out. More than any country on Earth – in total numbers, or as a percentage of the population, Americans are incarcerated, imprisoned — freedomless. Of course there’s a legitimate explanation for many of them, but what’s the reason for the rest? Restrictive laws that went too far and tied judges’ hands: California’s “three strikes and you’re out” legislation, for one, that was approved by voters long ago but is perhaps outdated now due to the growing acceptance of marijuana. The privatization of prison management and ownership is even more damning. Orange Is the New Black focuses on race and classism themes, but there’s more to the show than that. I’d affirm lead character Aleida Diaz when she says, “We a for-profit prison now. We ain’t people no more. We bulk items, sardines in a can.” I spent one night in a Danish pokey 50 years ago for intoxication, and it was 18 hours too long. We owe it to one to two million orange clad prisoners to clean up the system and give validity to our own national anthem.

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Well, solving the “Orange Is Not Free” dilemma may take time just as the solution to a global debt crisis (now seven years running) may take even longer. It helps though to understand what the plan is in order to invest accordingly. While I and others have been critical of its destructive, as opposed to constructive elements, it is the current global establishment’s (including Trump’s) overall plan, and the establishment’s emphatic “whatever it takes” monetary policies are the law of our financial markets. It pays to not fight the tiger until it becomes obvious that another plan will by necessity replace it. That time is not now, but growing populism and the increasing ineffectiveness of monetary policy suggest an eventual transition. But back to the beginning which was sometime around 2009/2010: How policy makers plan to solve a long-term global debt crisis: 1. As in Japan, the euro zone, the U.S., and the U.K., central banks bought/buy increasing amounts of government debt (QE), then rebate all interest to their Treasuries and eventually extend bond maturities. Someday they might even “forgive” the debt. Poof! It’s gone. 2. Keep interest rates artificially low to raise asset prices and bail out over-indebted zombie corporations and individuals. Extend and pretend.3. Talk about “normalization” to maintain as steep a yield curve as possible to help financial institutions with long-term liabilities, but normalize very, very slowly using financial repression. 4. Liberalize accounting rules to make some potentially “bankrupt” insurance companies and pension funds appear solvent. Puerto Rico, anyone?5. Downgrade or never mention the low interest rate burden on household savers. Suggest it is a problem that eventually will be resolved by the “market.”6. Begin to emphasize “fiscal” as opposed to “monetary” policy, but never mention Keynes or significant increases in government deficit spending. Use the buzzwords of “infrastructure” spending and “lower taxes.” Everyone wants those potholes fixed, don’t they? Everyone wants lower taxes too! 7. Promote capitalism — even though government controlled, near zero percent interest rates distort markets and ultimately corrupt capitalism as we once understood it. Reintroduce Laffer Curve logic to significantly lower corporate taxes. Foster hope. Discourage acknowledgement of abysmal productivity trends which are a critical test of an economic system’s effectiveness.8. If you are a policy maker or politician, plan to eventually retire from the Federal Reserve/Congress/ Executive Wing and claim it’ll be up to the millennials now. If you are an active as opposed to passive investment manager, fight the developing trend of low fee exchange-traded funds and index funds. But expect to retire with a nest egg. That’s the plan dear reader, and President-elect Trump’s policies fit neatly into numbers 6, 7 and 8. There’s no doubt that many aspects of Trump’s agenda are good for stocks and bad for bonds near term — tax cuts, deregulation, fiscal stimulus, etc. But longer term, investors must consider the negatives of Trump’s antiglobalization ideas which may restrict trade and negatively affect corporate profits. In addition, the strong dollar weighs heavily on globalized corporations, especially tech stocks. Unconstrained strategies should increase cash and cash alternatives (such as high probability equity buy-out proposals). Bond durations and risk assets should be below benchmark targets.On TV, Orange Is the New Black, yet in the markets “Red” (in some cases) may be the new “Green” when applied to future investment returns. Be careful — stay out of jail. Gross, a founder of Pimco, is currently manager of the Janus Global Unconstrained Bond fund (ticker: JUCDX), a portfolio operated by Janus Capital (JNS ).

The concept of martyrdom is a key driver sustaining the ideology of jihadism, but more importantly, it is a bona fide Islamic notion that shapes the behavior of the armed forces of most Muslim states. Martyrdom (along with many other associated ideas) is thus a contested concept. Muslim states have the challenge of significantly rolling back this contested nature, which is the prerequisite to delivering a decisive blow to the Islamic State and the wider jihadist movement. Given the lack of a consensus among the opponents of the jihadists, the problem is unlikely to be resolved in the foreseeable future.

In a paper he delivered to the Aristotelian Society in London in 1956, renowned Scottish political philosopher Walter Bryce Gallie introduced the term “essentially contested concept.” Gallie explained how a single concept is interpreted or applied by different groups in different ways. He showed how competing actors each claim to be the true upholders of a particular idea. While Gallie had the dispute over democracy in the context of the Cold War in mind, there is no shortage of such notions.

One such contested concept is the Islamic idea of martyrdom (“istishhad” in Arabic). According to classical understandings of Islam, a Muslim who dies while trying to fulfill a religious directive is a martyr (“shaheed”). While there are many types of martyrs, historically the ones most glorified are those who laid down their lives while participating in military combat. Muslims believe that the Almighty has promised to forgive all of the sins of martyr, who would be granted the best of places in the Hereafter.

In the medieval era this concept was inculcated in the military culture of the various Muslim dominions to further their geopolitical imperatives. This practice has more or less continued into the modern day. The armed forces of most Muslim-majority states today have institutionalized this concept as part of their ethos. This is true of nations that refer to themselves as Islamic and those that claim to be secular; the emphasis varies from country to country..A Turkish honor guard carries the coffin of a policeman killed during the failed July 15 coup attempt, at Kocatepe mosque in Ankara, on July 20, 2016. ADEM ALTAN/AFP/Getty Images The concept of martyrdom is straightforward in the context of conflicts between Muslims and non-Muslim entities – the Muslim side glorifies its slain troops as martyrs. However, martyrdom quickly becomes a contested concept when the belligerents both happen to be Muslim. Since the earliest days of Islam, rival Muslim polities waging war against one another have claimed their fallen soldiers as having embraced martyrdom. This contestation of martyrdom is linked to the dispute over which one was the true defender of the faith.

In the contemporary world, though, this idea has become far more convoluted with the rise of armed non-state actors challenging the religious legitimacy of Muslim regimes and the authenticity of different official versions of Islam. Insurrectionist Islamists active in many Muslim countries claim to be waging jihad against the incumbent regimes, which they have declared un-Islamic. Their signature weapon is suicide attacks, which they insist are “martyrdom operations.” Increasingly since the 1980s, thousands of individuals have been recruited to become human bombs in attacks, which have mostly targeted fellow Muslims but also significant numbers of Westerners and other non-Muslims. Somewhat paradoxically, jihadists refer to suicide bombers as martyrs, while those killed in the attack (civilians and security personnel) are also declared martyrs by those who oppose the jihadists.

One of the driving forces of the phenomenon referred to as jihadism has been this notion of martyrdom. Legions of young Muslims – male and female – have been lured to the jihadist enterprise after being seduced by the idea that they will become martyrs if they join the cause of al-Qaida and more recently the Islamic State, as well as other jihadist groups. International efforts to defeat jihadists have failed because Muslim regimes have proved incapable of mounting an effective counterideological assault. In the end this war will only be won when concepts such as martyrdom are not as contested as they are today.

In his Nov. 28 assessment, “Islam and Terrorism,” Geopolitical Futures founder George Friedman made two significant observations. First, it is intellectually dishonest to claim that jihadism has nothing to do with Islam. Second, Muslims who oppose jihadists are the only hope in defeating this scourge. The fact that martyrdom and many other concepts such as jihad and Islamic governance are contested means that Islam, collectively, is at issue.

Muslim regimes battling jihadists will have to reclaim ownership of these concepts, in particular, martyrdom. The rest of the world cannot settle this dispute. If it tries, it risks making matters worse. Only Muslim states can ensure that their citizens are not being lured by radical Islamist impulses. This cannot happen without regaining intellectual leadership over religious discourse.The chances of that happening anytime soon are slim because there are multiple intra-Muslim conflicts brewing at the same time. The problem is not just that we have jihadists seeking to subvert incumbent Muslim regimes. Complicating the battlespace are the wars in Syria, Iraq and Yemen, which are sectarian struggles. The Saudi-led Sunni camp and the Iran-led Shiite bloc are both claiming that they are waging a legitimate struggle against “deviants” and both honor their dead as martyrs.

What we thus have is the lack of a coherent Muslim mainstream. To a great extent this explains why jihadists are gaining ground. Reversing this trend requires not just viable political economies but also the reappropriation of the discourse on Islam. This will involve breakthroughs in fresh reinterpretations of the religious texts to combat the raw cutting and pasting of medieval exegeses that is common to both religious traditionalists and political radicals. The physical war will only be won once there is enough intra-Muslim consensus on these contested concepts.

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.